August 14, 2006

The Ledger Domain

The Fantasy Stats Case Ruling and Its Repercussions

by Maury Brown

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For the time being, the use of MLB player statistics for fantasy sports purposes does not require a licensing agreement with MLB Advanced Media.

In St. Louis on Tuesday--4 weeks before trial was set to begin on Sept. 5th--United States District Court Judge Mary Ann Medler upheld the argument by CBC Marketing, Inc. that MLB Advanced Media (MLBAM) and the MLB Players Association (MLBPA) could not force businesses to pay for statistics used in the online sports fantasy industry. Judge Melder ordered that CBC's Motion for Summary Judgment be granted and that the MLBPA and the MLBAM not interfere with CBC's fantasy games.

The summary judgment is seen as a decisive victory for the fantasy sports industry, which has an estimated 15 million people playing fantasy sports games, spending an estimated $1.5 billion to do so.

CBC Marketing, Inc., which runs CDM Fantasy Sports, had sued MLB Advanced Media (MLBAM) and the MLB Players Association (MLBPA), claiming that statistics were part of the public domain, and therefore not a violation of player privacy rights, as claimed by the MLBAM and the MLBPA.

In her conclusion, Judge Medler wrote, "[T]he court finds that the undisputed facts establish that the players do not have a right of publicity in their names and playing records as used in CBC's fantasy games and that CBC has not violated the players' claimed right of publicity." She continued: "The court further finds, alternatively, that even if the players have a claimed right of publicity, the First Amendment takes precedence over such a right. The court further finds that the undisputed facts establish that the names and playing records of Major League baseball players as used in CBC's fantasy games are not copyrightable and, therefore, federal copyright law does not preempt the players' claimed right of publicity."

The following day, the MLBAM and MLBPA issued a joint statement announcing their intent to appeal the ruling. "We are disappointed by the Court's decision yesterday in CBC v. MLBPA and MLBAM," the statement read. "We expect to appeal the decision, and remain confident that we will prevail in that effort. We continue to believe that the use of the players, without their consent, to create this type of commercial venture is improper."

The MLBAM and the MLBPA believes that a jury should decide who controls the rights to player identity. Player identity is currently controlled by the players through the MLBPA, such as with trading cards and bobblehead dolls. When contacted by email, MLBAM spokesman Jim Gallagher said no official comment could be made at this time. The MLBAM and MLBPA will work in partnership on the appeal.

Reached for comment on Friday, Charlie Weigert, co-founder and vice-president of CDM Sports, said, "The issue dealt more with a point of law and deciding how the law should be interpreted. These rulings are usually from a judge rather than a jury.

"The decision was a defining moment in the fantasy sports industry," said Weigert. "The judge was very succinct in her ruling, and we will move forward and address what ever comes out of the appeals process at that time. The judge confirmed what we have believed all along."

In January of 2005, MLBAM and the MLBPA reached a historic five-year agreement valued in excess of $50 million. At the time of the agreement the press release from MLB announced that the deal "provides MLBAM the exclusive rights to use, and to sublicense to others, Major League Baseball player group rights for the development and creation of on-line games, all other online content, including fantasy baseball and interactive games, as well as all wireless applications including cell-phone enabled games." The agreement with the Players Association transferred the rights to players' names and images to MLBAM for use in for-profit Internet or technology-based commerce through licensing. At the press conference, the MLBPA cited 40 years of case law supporting the need to take a license when using the identity of a sports figure in a pay-to-play, commercial game.

At the time, the agreement sent shockwaves through the fantasy sports industry. If an "unlicensed" company used MLB statistics in conjunction with a player's name, or image, MLBAM could claim that they were doing so illegally. To add to this, the agreement between MLBAM and the MLBPA limited the total number of licenses to 7, which was down from 20 before the MLBAM and MLBPA deal. ESPN, CBS Sportsline, Yahoo!, and Protrade are seen as the largest businesses conducting fantasy baseball games that were granted licenses after the agreement.

CDM Sports had long been licensed through MLB to conduct fantasy sports leagues as a for-profit business. Their license ran out on Dec. 31 of 2004, and they passed on a stand-alone sublicense. After the MLBAM and MLBPA agreement, CDM decided to fight back. On February 7, 2005, three days after the agreement between MLBAM and the MLBPA was announced, CDM Sports (under their parent name, CBC Marketing, Inc) filed suit against MLBAM over the issue of licensed use of statistics. Since that filing, CDM has continued to operate as a for-profit fantasy sports business without a license from MLBAM.

In a counterclaim, the MLBPA and MLBAM claimed CDM had been using team logos in its games, without permission. That counterclaim was settled with CDM prior to the court's decision on Tuesday.

The Impacts of the Summary Judgment

Greg Ambrosius, the former president of the Fantasy Sports Trade Association, believes the judge's decision clears an element of confusion for those who are involved in the fantasy sports industry. "The judgment removed the gray areas around player privacy rights, and will make it easier for those that are in the fantasy sports industry to make decisions based around that judgment," Ambrosius said. "The judge did a thorough job in rendering her decision. The Fantasy Sports Trade Association looks forward to continuing its relationship with the MLBAM and MLBPA, as well as the other player unions as this industry grows."

The Fantasy Sports Trade Association reports that an estimated 6-7 million peoples are currently playing fantasy baseball. By comparison, of the 15 million that play fantasy sports games, 90% of them will play football, with 50% playing baseball, underscoring that many of those who are playing are crossing over into more than one fantasy sport. As Ambrosius said, "This issue is not just a baseball issue. It impacts all sports, and has for some time."

With the magnitude of Judge Melder's decision, the other Big-4 sports may well weigh in by filing amici curiae briefs (friendly briefs), supporting the MLBAM and MLBPA upon appeal. Lawrence W. Boes, Esq., a semi-retired lawyer, who has argued intellectual property and antitrust law and studies legal aspects of the business of baseball, sees the possibility of the case broadening in scope. "I would confidently expect that the lawyers and other advisors of MLB, MLBAM and MLBPA will meet to discuss this possibility," said Boes. "Assigning one or more of their number to scout the other Big-4 and see if there is any interest and merit in supporting such an effort might be a possibility."

The next step for the MLBAM would seem to revolve around retaining the status quo while waiting for the appeals process to play out. The decision seems to leave open the possibility that only CDM is impacted, while others that have not filed for license may not be. Boes sees evidence of this within the decision. "Reading the critical ordering paragraphs of the memorandum decision, the next step will be the drafting and filing of a final judgment with an injunction ordering MLBAM and MLBPA not to interfere with CDM's operations as described by it in the litigation," Boes said. "There is a reference to a paragraph of CDM's initial complaint for such relief, and it will probably be limited to CDM and would not be enforceable by any other Internet fantasy sport operation."

It is also possible that the MLBAM and MLBPA may feel aggrieved by the injunctive relief in some manner. Perhaps, because of pressure from the paying licensees, they could apply for a stay pending appeal to the District Court. If denied at the District Court level they could look to the Court of Appeals to hold the status quo. This action would then lock in the agreement that the MLBAM and MLBPA came to in January of 2005.

If, after all the appeals are exhausted, CBC prevails, the question is how the fantasy sports industry will be impacted going forward with the barrier removed. Those that had licenses prior but were then locked out due to restricting the number of licenses granted would seem prime to reopen fantasy sports games for business. AOL.com, SI.com, FoxSports.com, and the SportingNews.com are examples of those that had licenses prior to MLBAM/MLBPA agreement.

Hanging in the balance of this case is the line between the First Amendment, intellectual property, copyrightable materials, and privacy rights. Questions about when statistics become part of the public domain are key points in this ongoing and complex case. If statistics were to be part of a licensing agreement, could it be possible that the box scores that have filled newspapers for almost 100 years become something that could be seen as a licensed commodity by professional sports leagues? Given that the statistics in the box score help sell newspapers, it may be that the leap is not as far as one might think. If upon appeal the case is heard by a jury, many will be watching to see, in the end, who owns the rights to player statistics.

Complete PDF versions of Judge Medler's Opinion and Conclusion can viewed online here.

Maury Brown is an author of Baseball Prospectus. 
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